Crowds and power

There has been a lot of focus in finance on herding behavior, so I have tried to get different perspectives on this issue of how crowds may effect financial markets. The herding behavior  can result in bubbles or at least viewed as an irrational response which cause trends in prices. There is herding that may be viewed as irrational but herding may also be a rational response when an investor is at an information disadvantage.

A unique view on crowds is from Elias Canetti, the 1981 Nobel Prize winner in literature. He wrote a wide ranging piece, Crowds and Power which looks at historical, cultural, and religious implications of crowd behavior. This is not an easy read, but presents the view that crowd behavior has driven many of the big movements in culture. This could be the exact opposite of the view that individuals matter. Put differently, the individual leader is successful because he can manipulate the crowd to be the instrument for change or the status quo.

Elias defines different types of crowds and how crowds change with goals and different stimulus. He then discusses tighter groups, the pack, which is a more focused crowd with specific goals and desires. Crowd behavior is tied back to the desire to survive and the elements of power. control,  and command.

The elements of Canetti's thesis can be applied to financial behavior. I found it to be an interesting exercise to try and apply his ideas to market behavior. As  a more quantitative person, I ask the question of how this can be measured or forecast. Here, I am at a loss at this time. Crowds, fear, the desire to survive all figure into markets, but the dynamics are not easy to explain, measure, or forecast.